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M&S shares rise despite sharp drop in clothing sales | |
(about 3 hours later) | |
Marks and Spencer shares have risen 9% despite it reporting its 13th consecutive quarterly drop in clothing sales, which it blamed on "unseasonal conditions in September". | |
The 130-year old retailer said like-for-like general merchandise sales - which are primarily clothing - fell 4% in the second quarter. | The 130-year old retailer said like-for-like general merchandise sales - which are primarily clothing - fell 4% in the second quarter. |
Nonetheless, M&S boss Marc Bolland said he was "pleased" with its progress. | |
Some analysts said the update suggested the start of a turnaround for the firm. | |
"Beneath the surface some faint glimmers of hope are beginning to shine through as the company's strategy starts to deliver," said Conlumino managing director Neil Saunders. | |
Analysts also pointed to the pick up in a closely-watched City measure - the margin at which M&S sells its clothing - which improved by more than expected, and the increase in the dividend, for the sharp share price rise. | |
Profit beat | |
Overall, its performance was better than analysts had forecast. Half-year pre-tax profit fell 0.4% to £279.4m, but underlying profits rose 2.3% to £267.6m which was ahead of expectations. | |
Online sales at its revamped website, which was re-launched in February, were down 4.6% in the second quarter, but this was an improvement on the 8.1% drop it reported in the previous quarter. | Online sales at its revamped website, which was re-launched in February, were down 4.6% in the second quarter, but this was an improvement on the 8.1% drop it reported in the previous quarter. |
And M&S said sales of womenswear also continued to improve. It did not give a quarterly performance, but said total sales were up 1.3% in the first five months of the year. | And M&S said sales of womenswear also continued to improve. It did not give a quarterly performance, but said total sales were up 1.3% in the first five months of the year. |
In food, like-for-like sales rose 0.2% in the second quarter, much weaker than the first quarter, but in line with analyst forecasts. | In food, like-for-like sales rose 0.2% in the second quarter, much weaker than the first quarter, but in line with analyst forecasts. |
Across the M&S group, like-for-like sales fell 0.2% in the three months to 27 September, but were up 1% for the half-year. | Across the M&S group, like-for-like sales fell 0.2% in the three months to 27 September, but were up 1% for the half-year. |
Analysis: Kamal Ahmed, BBC business editor: | Analysis: Kamal Ahmed, BBC business editor: |
The City is likely to welcome Marks and Spencer's results - gross margins are up, profit before tax is up (for the first time in four years), cash generation is up and dividends are up. | The City is likely to welcome Marks and Spencer's results - gross margins are up, profit before tax is up (for the first time in four years), cash generation is up and dividends are up. |
But the overall story is still one familiar to all those who have been watching M&S for any length of time - food doing well but overall general merchandising - including vital clothing - down. | But the overall story is still one familiar to all those who have been watching M&S for any length of time - food doing well but overall general merchandising - including vital clothing - down. |
The retailer does appear better positioned to gain when real incomes start rising, with up-market store refits. There has been some improvement in womenswear sales. | The retailer does appear better positioned to gain when real incomes start rising, with up-market store refits. There has been some improvement in womenswear sales. |
One big worry will be the performance of the website where sales are still down over 6%, although M&S insists it is turning around rapidly. It will need to, Christmas is just around the corner. | One big worry will be the performance of the website where sales are still down over 6%, although M&S insists it is turning around rapidly. It will need to, Christmas is just around the corner. |
'Style is back' | |
Despite the positive investor reaction, many analysts said they were concerned about the continuing fall in clothing and homeware sales. | |
Barclays analyst Christodoulos Chaviaras reiterated his "negative rating" on the shares, suggesting investors should not buy them. | |
"The magnitude of the decline [in general merchandise sales] means we doubt the weather is entirely to blame. Our longer-term negative view on M&S is driven by continuing market share losses in general merchandise, which we do not see abating anytime soon," he added. | |
Phil Dorrell, director of the retail consultancy Retail Remedy, said: "no amount of hand-wringing about September's unseasonal weather can explain away such weak clothing sales". | |
"The brand is finally introducing more clarity to its over-complex clothing lines, but look beyond the flagship stores and many are still a mess of baffling sub-brands, and feel like museums where older people go to browse endless rows of black slacks," he added. | "The brand is finally introducing more clarity to its over-complex clothing lines, but look beyond the flagship stores and many are still a mess of baffling sub-brands, and feel like museums where older people go to browse endless rows of black slacks," he added. |
However, Mr Bolland told the BBC's Today programme that he was encouraged by the improvement in womenswear. | However, Mr Bolland told the BBC's Today programme that he was encouraged by the improvement in womenswear. |
"The trend is positive. Customers are telling us the style is back at M&S," he said. | "The trend is positive. Customers are telling us the style is back at M&S," he said. |
Mr Bolland said people should disregard September due to the warm weather, and said without that month womenswear sales had risen. | Mr Bolland said people should disregard September due to the warm weather, and said without that month womenswear sales had risen. |
However, he said market conditions continued to be challenging. | However, he said market conditions continued to be challenging. |
"As a result we remain cautious about the outlook for the remainder of the year," he added. | "As a result we remain cautious about the outlook for the remainder of the year," he added. |
'John Lewis lite' | 'John Lewis lite' |
M&S is not the only retailer to blame the unusually warm September for affecting trade. | M&S is not the only retailer to blame the unusually warm September for affecting trade. |
Clothing retailers H&M and Next have both said that the weather has hit sales. | Clothing retailers H&M and Next have both said that the weather has hit sales. |
The retailer, which has come to the end of its three-year programme aimed at modernising the business, on Monday unveiled its new look store at Westfield shopping centre in west London. | The retailer, which has come to the end of its three-year programme aimed at modernising the business, on Monday unveiled its new look store at Westfield shopping centre in west London. |
BBC business editor Kamal Ahmed said the store's appearance suggested M&S wanted to be a "John Lewis lite", that is John Lewis at mid-market prices. | BBC business editor Kamal Ahmed said the store's appearance suggested M&S wanted to be a "John Lewis lite", that is John Lewis at mid-market prices. |
"The problem is, the new M&S will only be wholly available in 70 of M&S's flagship stores. The rest of the 350 store estate will show 'elements' of the new look but they are simply not large enough to handle the full makeover," he added. | "The problem is, the new M&S will only be wholly available in 70 of M&S's flagship stores. The rest of the 350 store estate will show 'elements' of the new look but they are simply not large enough to handle the full makeover," he added. |